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Team A Week 5 Problems

Problem-solving set from Week 5, covering various academic concepts.

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    Team A Week 5 Problems PE - 2, page 862 In January 2012, the administration of Sarah Company determined that it has enough money to buy transient investments in debt and stock securities. In the course of the year, these are the transactions that happened. Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage fees of $1,000. Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage fees of $500. Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage fees. Interest is payable semiannually on April 1 and October 1. July 1 Received a cash dividend of $0.80 per share on the NJF common stock. Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage fees of $350. Sept. 1 Received $2 per share cash dividend on the SEK common stock. Oct. 1 Received the semiannual interest on the CRT bonds. Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees. The fair values of the NJK and SEK common stocks were at $39 and $30 in every corresponding share at December 31. Instructions (a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.) (b) Prepare the adjusting entry at December 31, 2012, to report the investments at fair value. All securities are considered to be trading securities. (c) Show the balance sheet presentation of investment securities at December 31, 2012. (d) Identify the income statement accounts and give the statement classification of each account. GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Feb 1 Stock Investments 51600 Cash 51600

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    (To record purchase of 1200 shares of NJF common stock) Mar 1 Stock Investments 18500 Cash 18500 (To record purchase of 500 shares of SEK common stock) Apr 1 Debt Investments 71200 Cash 71200 (To record purchase of 70 CRT Bonds) Jul 1 Cash (1200 x 0.80) 960 Dividend Revenue 960 (to record receipt of a cash dividend NJF) Aug 1 Cash 8050 Loss on Sale of Investments 550 Stock Investments 8600 (To record sale of 200 shares of NJF common stock) Sept 1 Cash (500 x 2.00) 1000 Dividend Revenue 1000 (to record receipt of a cash dividend) Oct 1 Cash 2800 Interest Revenue 2800 (To record receipt of interest on CRT bonds) Oct 1 Cash 75700 Debt investment 71200 Gain on sale of investments 4500 (To record sale of CRT bonds) Dec 31 Unrealized Loss - Income 7500 Market Adjustment Trading 7500 (to record unrealized loss on trading securities

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    CASH Stock Investments Debt Investment 960 51600 51600 8600 71200 71200 8050 18500 18500 1000 71200 2800 75700 Dividend Revenue Loss on Sale of Investments Interest Revenue 960 550 2800 1000 Gain on Sale of Investments Unrealized Loss - Income Market Adjustment Trading 4500 7500 7500 Sarah Company Balance Sheet (partial) 31 - Dec - 12 Current Assets Short - term investments, at fair value 54000 Other Revenue & Gains • Dividend Revenue • Interest Revenue • Gain on Sale of Investments Other Expenses & Losses • Loss on Sale of Investments • Unrealized Loss

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    E7 - 5 In the Reyes Company, checks are currently not prenumbered for the purchasing client and the treasurer are both permitted to provide checks. Every benefactor has authorization to withheld checks stored in an open vault or cabinet. The purchasing agents pays all the charges involving the merchandise bought for resale. Before the payment, the purchasing agent confirms that the merchandise have been acquired and validates the precise calculation of the vendors’ receipt. After the transaction, the receipt is kept by the vendor and the purchasing agent lists the payment in the cash disbursements journal. The treasurer pays the remaining charges after the verification by the administrators. After the payment, the treasurer seals all transactions with “paid”, sorts them according to payment date and lists the check in the cash disbursements journal. The Reyes Company retains one checking account that is reconciled through the treasurer. Instructions (a) List the weaknesses in internal control over cash disbursements. 1. No prenumbered checks. 2. Checks are kept in unlocked cabinet 3. No segregation of duties (b) Identify improvements for correcting these weaknesses. 1. Order prenumbered checks. 2. Lock disbursements and keep in separate area from others 3. Segregate approvers, buyers, signers, treasury, account reconcilers. 4. Filing improvements 5. More than one signer needed for checks.

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